Walk into any IBM office this week and you'll likely find employees on all fours yelling "Thank you sir, may I have another!" The Fortune 100 tech behemoth has found itself as the optimal case study on creative ways to get people to quit while avoiding nuisance severance packages. And, oh yeah, also making former employees feel as useless as a Palm Pilot.
IBM has decided to single-out employees by sending them back to the HR classroom to evolve their skills because they "have not kept pace with acquiring the skills and expertise needed to address changing client needs, technology and market requirements," according to a memo sent to some employees that was obtained by Computerworld.
But wait, it gets better: IBM is going to force these underachieving people to take a pay cut of 10 percent of their salary while they are in mandatory training.
In other words, IBM has become a category killer in the fine art of "managing people out."
Now before everyone gets upset and looks at IBM as the villain, let me remind you that the company is a publicly-traded entity and, therefore, has a fiduciary responsibility to its shareholders. In addition, it's a for-profit organization and was created to 1) make money and 2) increase shareholder value. IBM's management is accountable for accomplishing these goals.
Yes, I know for you socialists out there reading this, the truth hurts. But, it's best to accept it as the United States is still considered a capitalist society (at least until the mid-term elections — a topic for another time).
But the ultimate report card is the share price of IBM, and in as nice a way as I can put it, this stock sucks. The best gauge for investors seeking past performance in an equity is to look at the year-over-year number and compare it to a broader average, like the S&P 500. Here's how IBM stacks up, year-over-year (9/17/13 to 9/17/14):
I'm confused as to why shareholders haven't protested in front of IBM's headquarters in Armonk, NY—or maybe they're on the way, which would explain all the traffic on Interstate 684 this morning. This company has seen its revenue shrink for nine quarters in a row!!
As Jack Welch would say to such pathetic results: "How the hell do you stay in business?!?"
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One way to increase shareholder value is to reduce operating costs — or, as we like to say on Wall Street, increase value at the expense of human capital.
IBM is expected to cut 13,000 employees from payroll in 2014. That may not seem like a lot for a company boasting over 430,000 workers, but headcount reduction will be the first task to complete if revenues do not turn upward. CEO Ginni Rometty knows she's on the hot seat if she can't turn this "elephant" around, and shareholders will likely seek her ouster as patience runs thin.
I doubt I'm alone here (the stock us up about 1.4 percent since the announcement on Monday), but I applaud IBM taking this route. There is limited risk as the company will either reduce headcount and be rid of incompetent employees, or retool and employ freshly-skilled workers required to re-engineer IBM's business model. Plus, layoffs can be brutally expensive and severance packages can sometimes last as long as a year, including benefits.
It's best to push the bottom feeders out or have them develop new skills to improve the organization.
Commentary by Todd M. Schoenberger, president of J. Streicher Asset Management LLC. He also serves as portfolio manager of the LandColt Onshore and Offshore Funds. Follow him on Twitter @TMSchoenberger.
Disclosure: Neither I, nor LandColt and J. Streicher, hold positions in IBM stock. However, J. Streicher reserves the right to enter into other banking and market maker relationships with the company.